Accounting Financial Ratios Flashcards
7 cards from real Accounting Online Program practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Accounting Financial Ratios flashcards as text
A company's total debt is $400,000 and total assets are $1,000,000. What is the debt ratio?
Answer: 0.40
Debt ratio = Total Debt / Total Assets = $400,000 / $1,000,000 = 0.40 or 40%.
Which financial ratio would a creditor most likely examine when assessing a company's long-term solvency?
Answer: Debt-to-equity ratio
Long-term creditors focus on the debt-to-equity ratio to gauge the degree of financial leverage and solvency risk.
Net sales are $900,000 and average total assets are $600,000. What is the asset turnover ratio?
Answer: 1.50
Asset turnover = Net Sales / Average Total Assets = $900,000 / $600,000 = 1.50.
A company pays $2 dividend per share and the stock trades at $40. What is the dividend yield?
Answer: 5%
Dividend yield = Annual Dividend Per Share / Market Price Per Share = $2 / $40 = 5%.
The operating profit margin differs from the net profit margin because it:
Answer: Excludes interest and taxes from the calculation
Operating profit margin uses EBIT (before interest and taxes), while net profit margin uses net income (after interest and taxes).
If a company's book value per share is $25 and its market price per share is $75, the Price-to-Book (P/B) ratio is:
Answer: 3.0
P/B ratio = Market Price Per Share / Book Value Per Share = $75 / $25 = 3.0.
Which of the following scenarios would INCREASE a company's current ratio?
Answer: Paying off a short-term loan with cash
Paying off a short-term loan reduces current liabilities, which increases the current ratio when current assets remain unchanged.